Strategic Cashflow Management: How Award-winning Accounting Firm, Accodex, Stays Ahead Of Their Cashflow

Caitie Copley is the CFO of Accodex, a multi-award winning accounting firm with highly qualified accountants across Australia and the United States. In this article, Caitie shares how the combination of Ignition plus their "Strategic Release of Creditors" tool guarantees that their business is never impacted by a disruption to their cashflow.

Businesses fail not because they aren’t profitable, but because they run out of cash… this tool can help solve your problem.

In a blog I wrote for Ignition in October 2017 , I mentioned that at Accodex, I use a tool we devised called the “Strategic Release of Creditors” to manage our cashflow. This can be very useful in a cashflow crunch, which most CFOs/Finance Managers of a startup will know too well, to ensure the doors stay open and the most important creditors are paid. You could also call it creditor shuffling, which is the basic premise of this tool - you shuffle payments around based on their priority.

The Strategic Release of Creditors (SRC) is a spreadsheet that breaks your list of creditors into the following:

• Payment method: This could be direct debit, EFT, ACH, or (I shudder to think) cheque; the payment method will determine whether or not payment dates can be shuffled easily.
• “Hurt”: This can be broken down into two components - your hurt (will late payment fees be added if you don’t pay on time?) and the hurt of your creditor (are they a startup/small business and relying on your payment?)
• Operational Hazard: The degree to which a late payment may affect your company. For example, there is an operational hazard in processing payroll late; late payroll = unhappy employees.
• Priority: Operational hazard carries the most weight in this decision. If a creditor is a high priority, then they will become the last resort for creditor shuffling.

The above four points form the most important parts of the SRC spreadsheet, however, I use this spreadsheet as the basis of my cashflow forecasting. To help in this, I added the following columns to my document:

• Frequency: How often does the creditor need to be paid?
• Payment due date: This can be used for all payment methods. For direct debit / ACH, what date does the payment get withdrawn from your account? For EFT or cheque, what date do you need to manually make the payment?
• Amount: How much needs to be paid?
• Monthly amount: Even though I have the amount in the previous column, having the monthly spend per creditor helps me visualise my monthly outgoings so that I can plan discretionary spending.

The end result will look something like this:

It's worth noting that most of the decisions will come down to professional judgement. For example, our landlord is very lenient with our rent payments, so we can sometimes pay a couple of weeks late, but most landlords aren't like this, and therefore the Operation Hazard may be High. You'll also note that the phone provider doesn't have a hurt, operational hazard, or priority. This is because it is direct debit and cannot be shifted. If we did want to change the ongoing direct debit date, we would reach out to the creditor to see if they are able to accommodate a change. We try not to do this too often.

Accodex has been with Ignition since 2013 and we have thoroughly enjoyed the improvements that have been made. My personal favourite improvement has been the ability to choose the recurring invoice date for each proposal .

In the past, we had had some resistance from clients because we have been unable to change the day they are billed. Now with this new feature, we can keep all clients happy by allowing them to choose the day their automatic payment is charged.

Not only does it keep clients happy, but it also smooths out our cashflow. For a long time, 95% of our monthly recurring revenue would be disbursed into our bank account in the first week of each month. Whilst this made our bank account look very attractive at the beginning of the month, it was a different story by the end of the month.

Now, with the help of this new feature, we can spread out payments from clients throughout the month and our cashflow looks much smoother.

Once every payment has been reflected in the SRC spreadsheet, I move all my payments into my weekly cashflow forecast. For the payments that cannot be rescheduled, such as the direct debits and the high priority creditors, I enter these into the spreadsheet and colour the cells red. I then put in the payments that can be rescheduled, (the EFT payments and low priority creditors) into the weeks that they’re due, but colour these cells green. This means that, at a glance, I can easily see which payments can be rescheduled, and which ones are either being automatically withdrawn or must be paid. The final addition is the expected revenue from Ignition, and with a few formulas, I have my weekly cash surplus or deficit from which management decisions can be made.

After many conversations with our clients, most of whom are small businesses, we discovered that their number one frustration in business is large debtor days, and not knowing when their next payment is coming. Whilst Ignition does allow clients to arrange a manual payment outside of PI, at Accodex we only use this for about 1% of our clients

The rest are all on recurring Direct Debit, or if you’re in North America, ACH (Automated Clearing House). Some of you may be thinking “but it takes up to 7 business days for the funds to be deposited into my account!”, however, I would definitely take the 7 business day lag for the certainty of money landing in my account (not to mention the automatic reconciliation of invoices), over the uncertainty of not having all of your money coming in on schedule!

Generally speaking, clients are good and, if you’re are in a position to do so, you can and should be selective about the clients you bring on board. But the reality is 62% of SME invoices are paid late:

No one bats an eyelid when your Netflix subscription is set up on a monthly recurring/set-and-forget basis, so why should this not be the case for your accountant? Cashflow is hard enough to manage as it is, so don’t add debtor chasing to your list of things to do!

Ignition removes late payments from the equation entirely. Once you have a handle on your highest priority creditors and their payment days, and you know when your income will be disbursed, your cashflow planning will be on auto-pilot.